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Small Business Tax Planning

For many small business owners, tax season is the most frustrating time of the year.

A time of the year that brings a whole new set of challenges for your online business.

Can you relate to this situation?

Have you ever dreamed of finding a way not to have to pay large sums of money every year in taxes?

The good news is – it is possible to reduce your yearly  taxes with proper tax planning.

What Is Tax Planning?

First thing first, tax planning is different from tax preparation.

Tax planning is a year-round process that involves identifying ways to reduce your tax obligations.

Efficient tax planning can make a huge difference for small businesses. In fact, it can be the only difference between a profitable company and the one that is just surviving.

What Are the Deductions for Small Businesses?

Simply put, any and all expenses that support your business operations could be a legitimate deduction and should be considered in your small business tax planning.

To give you an idea on some of the deductions you can take for your small business…

Here is a small business tax deductions checklist:

  • Income tax
  • Property tax
  • Excise tax on use and consumption of transportation, communication, fuels, etc.
  • Self-employment tax
  • Sponsored events
  • Payroll or employment taxes

In addition to these, some states require small businesses to pay:

  • Sales tax
  • Franchise taxes
  • Gross receipts tax

Some percentage of these additional taxes can be used towards your tax deductions. The tax code has changed in the recent years, so please consult your tax professional if you have any questions.

Common Tax Planning Mistakes Small Business Owners Make

Ignoring tax planning is the biggest mistake many small business owners make. This happens because the owners of small businesses usually wear multiple hats at the same time. They are often the ones managing the product development, marketing, accounting, and even hiring.

With so much work on their hands, they often end up overlooking  proper tax planning.

These is another category of small business owners who fail to understand that tax planning is a year-round process. This unfortunately leaves them unable to make use of the opportunities that potentially come up throughout the year. Opportunities that could help them reduce their annual tax bill.

Another reason why small business owners end up with huge tax liabilities is because they’re unaware of the compliance requirements they have to fulfill. Requirements like the need to register as a sales tax vendor and the know how to properly prepare annual tax and accountability forms.

Tax Planning Tips for Small Businesses

Here are some simple, but useful, tips for small business tax planning:

  • Create a Tax-Calendar

A tax-calendar is one of the most important tax planning tools. It helps you to keep track of deadlines and other important dates. There is a customizable calendar tool available on the IRS website.

  • Keep Track of Your Expenses

According to the IRS, a business is entitled to tax credits and deductions for the money spent in qualified business expenses. However, you need to keep a track of your business expenses throughout the year in order to benefit from this policy.

  • Maintain Your Documents

You need to maintain a record of documents that are required for managing business development and for filing tax returns.

Make sure you maintain all the balance sheets, income statements, and purchase receipts. You also need to have proper  documentation to support any claims made when filing your taxes.

For example, if you want to deduct the money spent on business travel, wages, or legal expenses, you will need to provide proof of payment.

You will also need to be able to explain how the expense was related to the business, in the event of auditing by the IRS. So, make sure you have all the receipts and any other supporting documentation to fully benefit from this policy.

Small Business Tax Planning Wrap Up

There you have it – a few very simple, but useful small business tax planning tips.

Start implementing these ideas right away to save on your taxes the next time around. The best way to ensure a reduction however; is to hire a tax professional, but if you are doing it on your own…

Make sure you have all the small business tax planning tips available.

For example, remember that you can take a tax deduction for your home office and even a tax deduction for the gas and repair cost for your company vehicles.

If you happen to have any small business tax planning tips that you would like to share. Please share them in the comment section below.


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